Market Observations

Fed Chief Jerome Powell spoke last week in Portugal and some of the key headlines included:

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"Inflation now shows signs of resuming its disinflationary trend."

"We are getting back on a disinflationary path."

"We've made a lot of progress."

September cut? "I'm not going to be landing on any specific dates here today."

"You can see the labor market is cooling off, appropriately so, and we’re watching it very carefully."

"Indeed, it looks like you’re doing just what you would want it to do."

?Source: Powell speaking at the European Central Bank (ECB) Forum on Central Banking 2024, Sintra, Portugal, 7/2/24

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On July 3, the GDPNow model estimate for real GDP growth in the second quarter of 2024 is 1.5 percent, down from 1.7 percent on July 1.

On July 5th we got the June employment report:

"The broad host of economic data all point to a softening," Seema Shah, chief global strategist at Principal Asset Management, wrote in a note. "Today's report adds to that picture."

By the numbers: There were 206,000 jobs added to U.S. payrolls last month, a decent gain. But downward revisions to prior months' data show a more rapid slowdown than previously thought.? There were a combined 111,000 fewer jobs in April and May than first estimated.? That brings the three-month average of job gains to roughly 177,000 — a step down from the 269,000 seen in the first three months of the year.

Source: Axios, 7/5/24

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Are bonds finally becoming more popular?? TLT, the popular 20-30 year Treasury Bond ETF, recorded a $2.7 billion inflow on June 24, 2024, the largest inflow on record. Year-to-date, the ETF has seen inflows of $4.4 billion, on track for its largest annual inflow on record.

Philanthropist, economist and hedge fund manager John Hussman issued a rather dire warning in his June newsletter:

"I may as well just say it. Based on the present combination of extreme valuations, unfavorable and deteriorating market internals, and a rare preponderance of warning syndromes in weekly and now daily data, my impression is that the speculative market advance since 2009 ended last week. Barring a wholesale shift in the quality of market internals, which are quickly going the wrong way, any further highs from these levels are likely to be minimal. In contrast, current valuation extremes imply potential downside risk for the S&P 500 on the order of 50-70% over the completion of this cycle."

Source: Hussman Market Comment, 6/23/24

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There have been several market commentaries focused on how the market reacts after the first rate cut by the FED:

The FDIC has warned that 63 Lenders are on the brink of insolvency due to banks sitting with $517 billion in unrealized losses:

BREAKING: Unrealized losses on investment securities for banks jumped to $517 BILLION in Q1 2024. This is $39 billion higher than the $478 billion recorded in Q4 2023. The surge was driven by higher residential mortgage-backed securities losses held by banks due to rising mortgage rates. Q1 2024 also marked the 10th consecutive quarter of unrealized losses, an even longer streak than during the 2008 Financial Crisis. As “higher for longer” returns, unrealized losses are likely to continue rising.

Where is inflation heading?? While the government reports the Consumer Price Index (CPI) on a monthly basis, many on Wall Street (traders and economists) are watching the daily report published by Truflation.

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Conclusion: It appears we have a slowing economy, slowing inflation and rising unemployment.? The Fed has held tight on moving, but it is starting to look like they are behind the curve.? If the economic data continues to disappoint, the Fed will be cutting rates to try and get ahead of falling data.? This could be troubling for stocks and good for bonds (lower interest rates).? It feels to me that we are close to a turning point and things could get interesting, as well as volatile, as we move deeper into summer and closer to the election.

?Should you wish to engage in further discussion or have any questions, please let me know.